Todays market is bringing alot of questions about whether you should consider refinancing your mortgage for a better rate. There are many different reasons people might re-negotiate their current mortgage. You may be considering using some of the equity in your home you have built up and use it to buy a rental property, Make and RRSP contribution or investment, pay off some high interest rate debt or just renegotiate your current rate for a better more competitive rate and lower monthly payment.

Below are some ways in which you can get a good idea on what kind of penalty you may be faced should you want to refinance your current mortgage. Again these are used simply as a guideline and are in no way exact. The lending institution you are currently dealing with will give you the exact amounts relating to your specifac situation.

Calculating Payout Penalties & Interest Rate Differentials (IRD)

Many closed mortgages include a clause stating that the payout privilege on the mortgage will be a three-month interest penalty, or interest differential, whichever is greater.

For the calculations below, using the following scenario:

$300,000 remaining on the mortgage

3 years into a 5-year fixed term at 5.5%

Today’s interest rate: 3.5%

We’ll just be using the simple interest amount – the actual amount of the penalty could be a little less than the amount quoted in the examples.

Three Month Interest Penalty :

Mortgage Balance X Interest Rate X 3 months

Plugging in the variables above, we would get:

= $300,000 X 0.055 X 0.25 (5.5% = 0.055, 3/12 = 0.25)

= $4125.00 would be the 3 month interest penalty

Now we have to calculate the interest differential – and that’s where penalties can be quite substantial – especially since interest rates have dropped considerably lately.

(0.02 = 2% which is the difference from 5.5%-3.5%, and 2 years left in term)
=$12,000.00 would be the Interest Differential Penalty

In the example above, the bank would then use the Interest Differential Penalty since that amount is the greater of the two. Remember that the way banks calculates their penalties sometimes is a mystery to me and can be greater than the figures above so make sure you ask.

Please remember that its not always about RATE, although important, there are other important steps you need to take into consideration when considering paying a penalty and shopping for a mortgage. Let a mortgage expert, put strategic steps and the right product in place that will ultimately make sure its in your best interest to pay a penalty and that your saving money.

I would also invite you to take a look at this link.I am part of a community of mortgage brokers that created a forum to get our best ideas together a create a simple and educational strategy showcased here on this website. A program I implement with all my clients, wherever they are in the mortgage process. Its a program created in mind to help consumers pay more attention to their mortgage and implement simple easy steps to save thousands of dollars. When was the last time your bank phone you up at any time to show you how to save money on your mortgage. I think i know the answer…..Please click the link and learn something valuable today then contact me to get started.

I am a licensed mortgage broker with years of financial experience, able to help you with your mortgage any where in Canada and Alberta. Remember my services are free and never should you feel there is any obligation. So please pick up the phone and contact me directly I would love to hear from you 1-888-819-6536. If your more comfortable with email please feel free to email me your questions at lisa@mortgageplayground.com

Although you will never hear any bank say that publicly, this is what is going on. Recently there has been some industry chatter about a few banks offering a sub 3% 5 year fixed product. One particular institution is bragging about their 6 billion dollar portfolio under administration, this product, and how great it is. At first glance you might think ” WOW, that’s awesome!” However as with all mortgages, you have to dig a bit deeper to find out the real nuts and bolts of this sub 3% offer. It’s a great offer alright for the bank, not for you; the consumer.

Based on an average mortgage size of $250,000, that’s 24,000 Canadians that negotiated directly with the bank who will feel ripped off once they find out about their terms and conditions. I am very pro client / consumer, and my job is to look out for their best interests so I simply can’t endorse this product. Consumers though need to know why they shouldn’t either. This product is priced well below the market average for 5 year product, and does not come without it’s “catches”. It’s definitely buyer beware and the bank will not tell you this.

Some of the features (or non-features you might say) are:

Minimal or no pre-payment privileges

This product has extremely low pre-payment features. On a monthly increase basis this could mean nothing to less than half of what the industry norm is. Lump sum payments may also be nothing or less than half the industry norm and if allowed only once per year. Pre-payment features are extremely beneficial and allow for strategies to be put in place. Lack of strategy means lack of interest savings for clients and consumers.

Fully Closed

When I say fully closed, I mean just that. A borrower cannot get out of the mortgage, unless they sell their place if at all. Who wants to sell their place if they want to refinance? I don’t know too many people that would. If borrowers do sell their place, a substantial penalty such as a 6 month interest penalty typically applies. Borrowers may be offered a reduced penalty (3 month) if they choose to refinance with that same bank however this still does not offer a borrower access to the entire mortgage market. It also confines them to more inferior product. If a borrower is going to pay a penalty, they rightfully should have the opportunity to entertain superior product. The average mortgage is in place roughly 3 years before being paid out or refinanced. Life just happens. More than likely a borrower will need to do something with their mortgage during their current mortgage term. To be locked down by these terms and clauses makes absolutely no sense.

No guarantee of best rates upon renewal or refinance

Banks know that consumers may not know the mortgage market at any particular point in time. What’s happening in the mortgage world is usually not on the forefront of people’s minds. When it comes time to renew or refinance borrowers can be offered a rate as high as 1% above the market norm and not realize it. When a borrower asks the bank to do better, they may be offered a discount further however that .5% “special” discount doesn’t look so good when the rest of the market is priced much lower. This amounts to more interest the borrower has to pay over the course of their mortgage. This is more money for the bank that should be staying with you.

Your mortgage will also be registered as a collateral charge.

Beware of this one as it is a very sly practice among banks. What does a collateral charge mean to a borrower? The bank will instruct the lawyer to register the title as a running account. More than likely you running account will have a global limit of the property value itself. This doesn’t mean you are going to get this money, it just means that your property is fully tied up. If you choose another lender at renewal, legal fees apply. A second mortgage or Line of Credit can’t be put behind this product because the bank has tied up ALL of your equity. No matter which way you turn, the bank has shackled you to more costs and fees.

The lesson here is that rate is not everything. Product and Strategy is. Borrowers need flexible product to execute strategy.

Thank you to one of my fellow brokers for writing this article. Consumers are becoming slightly more educated about shopping for a mortgage, but clearly not enough, that means we have alot more work to do to make sure consumers are much more informed about their options when shopping for a mortgage wherever they are in the mortgage process. READ ON…

Every now and then we see a mortgage stat that’s a jaw-dropper.

This finding from Manulife Bank is one of them. It suggests there are a lot more people with money to burn than one might expect.

Manulife recently surveyed 1,000 Canadian homeowners between the ages of 30 to 59. Among respondents with a mortgage, two-thirds (65%) did not compare mortgages from more than one lender when they last renewed.

More specifically:

20% stayed with their current lender after maturity and did not negotiate

45% stayed with their current lender and tried to negotiate a good deal, but did not shop around

35% compared mortgages from several lenders and choose the best overall lender and product.

The youngest group (ages 30-39) was most likely to shop around (41%), but was also most likely to
accept their current lender’s offer without negotiating (24%).

We asked Doug Conick, President & CEO of Manulife Bank, why on earth people would give so much power to their lender.

“Most people lead very busy lives and may not have the time or expertise to fully investigate their options,” he said.

“Through our debt survey we’ve found that only about 3 out of 10 Canadians work with a financial adviser to manage their debt more effectively.”

“With busy lives and a lack of advice for most, this decision often gets left until very close to the renewal date, causing borrowers to follow the path of least resistance and renew with their current lender.”

“The unfortunate thing,” he added, “is that this could end up costing them a lot of extra money and keep them in debt longer than they need to be.”

That’s for sure.

In our experience, people who auto-renew often pay 1/2%-3/4% more than necessary, or worse! In fact, we’ve seen innumerable people sign renewal letters at their bank’s “special offer” rate, which is usually well above the market. (Example: Today’s 5-year fixed “special offer” bank rates are 3.94% to 4.09%. That’s up to 80 basis points above competitive rates on the street.)

Even a 1/4% rate difference amounts to over $4,000 more in interest over five years, on a $200,000 mortgage with a 20-year amortization. That’s money that could normally go towards prepaying a fat chunk of principal.

It’s hard to fathom why anyone would let a lender pick their pocket like this. At the very least, folks must find it within their strength to lift up the phone and call an independent mortgage planner.

Even if you’d rather stay with your current lender at renewal, seek out a second opinion. You absolutely owe it to yourself to keep your lender honest by surveying the market.

Of course, this all begs the question of why someone would ever want to deal exclusively with a lender that aims to maximize the interest they pay…but that’s a story for another day.

Sidebar: The report also confirmed, yet again, the various studies which show that people underutilize their prepayment privileges.

In the last year, out of respondents with a mortgage, 70% did not make any extra payments.

By far, the most common reason cited for not making an extra mortgage payment was “a lack of extra money.”

Buying her first house and getting her first mortgage was an overwhelming experience for Roslyn Judd.

She had signed a deal to buy a new house, she had put down her deposit, and she was pre-approved for a mortgage. Now she had to sign a final deal with her bank to lend her hundreds of thousands of dollars.

Reduce spending

“I had never applied for a mortgage before and I found that [to be] the most intimidating part of the home-buying process, so I was procrastinating,” she says. “I think it was the enormity of the money that you are asking somebody to lend you.”

Then a friend in the building where she works suggested she check out her company’s website, RateSupermarket.ca to compare mortgage rates and talk with one of the mortgage brokers featured on the site.

So she did, and her mortgage broker was able to get her a deal with a seasoned lender whose rate was much better than what her bank had offered.

“It was the best because it was so personal,” she says. “It was like someone was holding your hand all the way through the process.”

Rona Birenbaum, a certified financial planner with Caring for Clients in Toronto, recommends all her clients seek the help of a mortgage broker when it comes time to buy a house, or refinance or renew a mortgage.

“It’s the most efficient way to get the best-priced and best-structured mortgage,” she says. “Bottom line.”

“So rather than shopping at multiple financial institutions and negotiating with each financial institution and arm wrestling them to give you the best deal, it’s one phone call and they do the rest for you.”

Vancouver mortgage broker Jessi Johnson says a mortgage broker can help you with all aspects of a mortgage, from figuring out how much you can truly afford, to determining the best mortgage product for you, to finding ways to save you money and pay off your mortgage faster.

In addition, you should expect your mortgage broker to review your mortgage a few times a year to see how you can pay it off faster, whether it’s still the right product for you, and if it’s still competitive. “It’s very rare that you’re going to get that service from a bank,” he says.

For people who are inexperienced with negotiating, who aren’t sure what the best mortgage product is for them or have a less-than-stellar credit rating, they can save time, money and hassle by using a mortgage broker, says Ms. Birenbaum.

“For the average person who would maybe not feel comfortable negotiating, who might feel as though they are not in the position to ask for a better rate, they definitely will [save],” she says. “A half per cent over a 20-year mortgage, is tens of thousands of dollars. It could be potentially huge money.”

But those interested in using a mortgage broker need to do some research, says Ms. Birenbaum.

The brokers she recommends are people with whom she has developed a professional relationship, and she knows they will do a good job because they’ve worked with her clients.

“There’s a wide range of experience, qualifications and quality in this particular industry,” she says. “So reputation and experience are extremely important.”

People ask their financial adviser to recommend a mortgage broker, or they can turn to others who recommend their broker.

Mr. Johnson says you should look for someone with several years experience, who is licensed, and has the title AMP – accredited mortgage professional.

“Like every industry there are rookies, so be careful when researching your broker, get a good idea about their experience before proceeding,” he suggests.

Many brokers now do the bulk of their work online, Mr. Johnson says, and that’s not an issue as long as there’s enough communication with the client either via e-mail or over the phone – and their online application process is secure.

“To be honest, the majority of our clients don’t leave their living room, and I don’t blame them,” he says.

If a broker asks for a retainer of any sort or any payment made out to them personally, that should be a warning sign, Ms. Birenbaum says.

Mortgage brokers are paid their fee by the lender, not by the person who is using the mortgage broker’s service, says Mr. Johnson. “There’s no cost for the client.”

Be aware though, whether you’re doing a new mortgage, a refinancing or renewal, to ask whether there are any legal or appraisal fees, he says. Legal fees for a new mortgage can be about $1,000, but sometimes a lender may cover both legal and appraisal fees; you just have to ask.

Right now, one of the big questions for those looking for a mortgage is whether to go for a fixed or variable mortgage, says Mr. Johnson. While historically variable mortgages have had better rates than fixed mortgages, that’s not necessarily the case right now.

“Any time the fixed and variable rates are very close I do recommend going fixed and they are close right now,” he says. Up until recently about 90 per cent of the mortgages he arranged were variable, but now more are fixed.

TORONTO, Dec. 16 /CNW/ – Vacation time and slower work schedules create an ideal time for open houses. However, as homes fill up with presents, decorations and visitors, sellers are often faced with the challenge of striking the right balance between cozy and crammed. Keeping your home tidy and sparingly-decorated doesn’t mean sellers can’t celebrate the season in style, but remember that buyers are looking for just the right amount of sparkle.

“Potential buyers expect that there may be some decorations, but when they arrive they are trying to envision how they would spend their day-to-day lives in the home,” says Phil Soper, president and chief executive, Royal LePage Real Estate Services. “Keeping the holiday decorations to the right level will be easier if you remember the goal is to bring out the home’s structural charm,” Soper adds.

We know that potential buyers can be put off by a home that has too many personal items. So while trying to manage the Christmas clutter, sellers should also remove items that remind buyers that the home belongs to someone else. To assist sellers, Royal LePage compiled a top ten list of things to avoid when selling a home during the holiday season.

Too many lights: A home will dazzle more if lights are kept to a tasteful minimum. Sellers should opt for white lights instead of multi-coloured flashing bulbs to provide a more neutral glow to a home.

Forgetting to clear the snow: Snow can look beautiful on trees, but driveways and walkways should be cleared as soon as the flakes fall. Buyers should be able to move freely during an open house so it’s important to remember all the outdoor paths and patios around your home.

No life or landscape: Give buyers a chance to imagine the potential in your landscape. Frost-resistant plants like flowering kale or miniature trees allow sellers to liven up walkways without taking away the buyer’s ability to envision his or her dream outdoor spaces

Not cozy: Everyone appreciates a warm, cozy home – especially in the winter. Set the thermostat at a warm temperature for the whole day, and be mindful that some thermostats have low temperature pre-sets during the day when no one is at home. When the home is attended, fireplaces and candles could also be lit to create a comfortable environment throughout the day.

Engage the senses: Simmering a pot of cider with cinnamon during open houses or showings will create a warm and festive feeling.

Lingering odours: Be aware of those holiday dishes that may leave a strong odour. If possible, wait until showings are completed before cooking those traditional favorites — potential buyers will appreciate a neutral environment.

Hiding a home’s seasonal bests: Photos of the home’s back and front yards, gardens and patios in spring and summer will show potential buyers what the house looks like when it is not buried under snow and when the leaves are still on trees.

Don’t let the tree take over: A smaller Christmas tree, with minimal decorations, will create the appearance of more space. A huge tree, on the other hand, will make the room look smaller, and busy decorations can intensify clutter.

Presents should not be present: It is important to cut back on clutter when showing a home; hide the wrapped presents to keep them out of eyesight.

Too many decorations: Remember, when selling a home during the holidays, less is always more. Whimsical ornaments can be great accents during the holidays, but be mindful not to go overboard. When it doubt, remove it.

Terry McBride , For Canwest News Service SASKATOON — Canadians have taken advantage of extremely low interest rates to overextend themselves. The Bank of Canada wants to try to prevent inflation by raising interest rates to slow the economy down. How will debtors manage?

Inflation vs. deflation

Actually, debtors generally prefer inflation (when prices go up) because that can make it easier to repay a debt, which is a fixed dollar amount owing. Loan payments become more affordable when wages keep up with inflation.

Debtors usually fear deflation (when prices go down) because it becomes more difficult to repay an obligation when the fixed number of dollars can buy more. Deflation is already a major concern these days in Europe where some governments are raising taxes and cutting back on spending to tackle mushrooming public debts. Businesses there may be forced to cut prices and workers’ wages to cope with the economic slowdown.

Debtors fear deflation. How can they handle debt payments after their wages are cut or they lose their jobs? Serious household debt management issues arise.

Mortgage term

If your mortgage is coming up for renewal, how do you choose the best mortgage term? If you have had a variable or floating rate of interest tied to the prime rate, should you take the safe route and lock in a fixed, usually considerably higher, interest rate for five years?

If your mortgage payments rise, then you will have to look at various ways to manage other debts.

Consolidate

One popular debt management strategy is to combine various loans into your mortgage or a line of credit. Consolidation can eliminate high-interest credit card debt. Free up some cash flow by reducing your interest costs.

Talk to a professional debt counsellor. Can you have a single monthly payment? You could continue to make the same level of payments on your consolidated loan as you did before consolidation. Aim to reduce your principal owing and cut interest costs.

Amortization

Knowing how amortization works will help you to understand how to properly manage your debts. Amortization is how long you are scheduled to repay an instalment loan.

If interest rates rise, consider stretching the repayment period on an instalment loan to reduce the size of your monthly payments. Making your payments smaller seems very attractive at first. However, by making payments over a longer time period you will eventually pay much more interest in the long run.

Debt snowball

Here is a strategy for cutting down your overall debt level:

Make a list of your debts. Add up how much you pay on each loan.

Pick the smallest debt to tackle first. Pay the minimum on all debts except for your target debt. Pay whatever is left on your target debt until it is paid off. Then, continue with the debt snowball strategy by choosing the next debt on the list as your target debt. Pay it off.

Borrow wisely

The next time you have to borrow, avoid buying something that drops in value. The only time you should buy something using debt is if it is something that will appreciate in value or generate additional cash flow for you.

As a general rule, if you are buying something with borrowed money, make sure that what you buy lasts longer than the debt. Don’t add to your debt burden by going on a vacation financed by credit cards.

Emergency fund

Do you have to borrow when you have an emergency? Instead you should build an emergency fund with cash held in reserve. You could use a Tax-Free Savings Account, the cash surrender value of a whole life policy or a Canada Savings Bond payroll savings plan, for example. Having cash available to pay for an emergency will give you greater financial security than an untapped line of credit.

The Bank of Canada announced this morning that it will leave its key interest rate unchanged and restated its commitment to holding this rate steady until mid-2010, conditional on the outlook for inflation. In its statement the Bank declared that “recent indicators point to the start of recovery in major economies, supported by aggressive policy stimulus and the stabilization of global financial markets.”

Lenders are expected to keep their prime lending rate steady. Variable-rate mortgages, variable-rate credit cards, and home equity lines of credit are typically linked to a lender’s prime rate.

However, in recent weeks the pricing of new variable-rate mortgages in relation to the prime rate has improved, especially in the case of 3-year and 4-year variable products.

While pricing for fixed-rate mortgages is not directly affected by today’s announcement, rates on certain fixed products have been declining recently making it very affordable for financing.